04 Dec Is New York or New Jersey better for ‘death’ taxes?
Q. I want to save on estate and inheritance taxes for my heirs. I’m 65 and I’ll receive my full Social Security benefits next year. I own two co-ops in Manhattan and a home in New Jersey. They are all mortgage-free but there is a $69,000 home equity loan on the house. Is it best for me to continue to live in New Jersey with assets in New York, or is it best to move back to New York, or even somewhere else? I don’t know how my assets will be taxed when I die and I leave them to my two daughters.
— Planning ahead
A. These two taxes – and who imposes them – are important to understand.
The estate tax is imposed on the estate of the decedent while the inheritance tax is paid by the beneficiary receiving the distribution from the estate.
Let’s look at the laws in both states.
The State of New Jersey no longer has an estate tax. It was suspended for residents effective Jan. 1, 2018, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.
New Jersey still has an inheritance tax, but it only applies to non-Class A beneficiaries, which in general are heirs that are not lineal descendants, Papetti said.
“Children or grandchildren are Class A beneficiaries so the New Jersey inheritance tax would not apply upon passing your estate to your daughters,” he said.
The State of New York’s estate tax is imposed on taxable estates in excess of the New York State Exemption, which is $5.49 million 2019 and will increase to $5.85 million in 2020, he said. New York estate tax rates start at 3.06% and rise to 16.0% for taxable estates in excess of $10.1 million.
There is no inheritance tax in New York.
Papetti said an estate of a New York Non-resident must file a New York State estate tax return if the estate includes any real or tangible property in New York State and the amount of the non-resident’s federal gross estate, plus the amount of any “includable gifts,” exceeds the state’s exclusion amount at the time of death.
He said “includable gifts” are gifts made while the decedent was a New York resident, made during the preceding three-year period ending on the date of death and are not included in the decedent’s federal gross estate.
So what does this all mean to you?
“It appears that New Jersey would be the more appropriate domicile to claim for your residency as no estate or inheritance tax would be due,” Papetti said. “Depending on the value of your two co-ops in New York, you may owe New York estate tax if the value exceeds the New York State estate exclusion amount and this is true whether you’re a New York or New Jersey resident.”
He also noted that under current New Jersey law, in your case, moving to another non-estate tax state – such as Florida – would not provide any additional estate tax benefit.
You should meet with an estate planning attorney to make sure your estate plan is complete and follows your goals.
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This story was originally published on Dec. 4, 2019.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.